Archive for March, 2010
Richard Powers is the senior vice president of real estate sales for Altisource Portfolio Solutions, a leading provider of real estate, mortgage, asset recovery and customer relationship management services. For this episode of In This Corner, Richard explains why the shadow inventory of homes could double from the S&P estimate, and what the industry plans to do about it.
Defaults are up, but foreclosure sales are down. How big is the pig-in-the-python going to get?
One thing is clear: the pig — at about half a trillion dollars — is already pretty darn big. But predicting just how much bigger it’s going to get is tough because doing so would be an attempt at economic forecasting, a dicey proposition at best. So let’s talk about likely ranges. S&P estimates that the number of foreclosed homes and seriously delinquent homes that have yet to reach the market represent 33 months of supply, including re-defaults. This assumes current levels of absorption in the $160 billion per year range. The elimination of the federal home buyer incentives, a deterioration in the job market, and rising interest rates all could have a dampening effect on absorption and a corresponding increase in the number of properties that will ultimately have to be liquidated. Therefore, in a worst case scenario, the total amount of shadow inventory could be much higher, perhaps as much as twice the number that S&P recently forecast.
So, asset managers are under some pretty serious pressure to not only manage the sale of the assets but the rate at which they go out the door. What works and what doesn't work for AM's looking for that perfect blend?
This is something we have to confront every day, and the bias is different for each of our servicer and investor clients. In a perfect world, each property would be sold in a day at the highest possible price. However, we have yet to stumble upon this nirvanic state. What we have done is run a variety of test and control scenarios that allow us to optimize the relationship between proceeds and sale time. This analytic approach has helped to determine the “right” listing price, rather than simply defaulting to a broker price opinion (BPO) or internal reserve price to establish the initial market exposure price. We have also steadily improved process and throughput to reduce cycle times. For example, we have automated a client’s rules into our system and in so doing have obtained delegated authority for many decisions that would otherwise involve hand-offs required for securing marketing or repair approvals.
Are there enough buyers waiting for those homes?
It would seem that, based on the current economic environment, the answer would be no. Of course, a further decline in home prices would help in one regard: demand. But on a macro level, it would only make matters worse as declining home prices would put even more pressure on defaults. Conversely, a sustained drop in unemployment and improvement in the economy would not only stabilize home prices but increase demand as well. While we can all hope for the latter scenario, we should also prepare should the outcome prove thornier over the next few years.
For those wise enough to prepare for the worst, what new innovations or strategies are some asset management firms using to liquidate this huge overhang of REO inventory?
Asset management firms are using short sales and deeds-in-lieu, as liquidation alternatives, as they often deliver a much higher net present value than the traditional REO sales process. As you might imagine, we are utilizing these approaches much more extensively, as is much of the industry. It goes without saying that finding a balanced solution that allows a borrower to remain in his or her home is the first and best option, where appropriate. In cases where workouts and modifications are not the answer, the next best option is to get the property into stronger hands in the least costly and most time-efficient manner. This is why there is so much focus on these tools, beginning with the creation of Home Affordable Foreclosure Alternatives (HAFA) program to the various private industry implementations outside of the federal government’s involvement.
In February, Altisource acquired Lenders One. What does the acquisition mean for Altisource, and is there going to be more condensing – companies acquiring smaller companies – in the future for asset management firms?
Let me answer this in reverse order. Consolidation across all industry segments is a trend that is firmly underway and underscores the fact that only the most efficient operators will survive. I see no evidence that this trend is reversing. But having said that, the transaction with Lenders One and MPA has nothing to do with efficiency but everything to do with synergy. The combined production of Lender’s One members was over $70 billion last year and places them among the top 5 in retail originations nationally. Altisource brings capital and complimentary products and services that will allow the participants within Lenders One to originate more loans and be more profitable. Lenders One/MPA has an impressive roster of member firms with a terrific management team. Although this partnership is in the early stages, we are excited indeed about the prospects ahead.
European Commission (EC) president José Manuel Barroso issued a statement:
The Commission is ready to propose an instrument for coordinated assistance to Greece. Such an instrument would be constituted by a system of coordinated bilateral loans and would be compatible with the no bail-out clause and with strict conditionality. The creation of this instrument does not imply its immediate activation. Our objective is an instrument designed within the euro area, with conditions and management established by the euro area and its institutions. We cannot prolong any further the current situation. I do not want to speculate if there will be a financial contribution from the IMF. What is important is to agree on a Euro area instrument. I urge the EU's leaders to agree on this instrument as soon as possible.
[Update 1: Adds numbers, strategy]
As the US Treasury Department gears up to launch the Home Affordable Foreclosure Alternatives (HAFA) program next month, lenders, tech companies and asset managers are racing to bolster capacity in time. Stepping into the fray, Lenders Asset Management Corp. (LAMCO), a default asset management company that traditionally offered REO services, is getting into the race to secure short sale business.
HAFA will launch April 5, 2010 and will provide incentives to servicers to conduct short sales or deeds-in-lieu of foreclosure for borrowers who fail to qualify for the Home Affordable Modification Program (HAMP). LAMCO is planning to use specialized teams of experts to handle the short sale and liquidation process by marketing and selling distressed and bank-owned (REO) properties under HAFA guidelines.
According to LAMCO, the efforts will streamline the short sale process, which one broker told HousingWire usually takes six to eight months as the many moving parts of the deal reach an agreement. Under HAFA, a short sale agreement between the buyer, seller, servicer and investor expires after 120 days if the short sale isn’t executed.
According to a spokesperson at LAMCO, the company can handle 2,500 short sale transactions per month and will scale toward 10,000 per month as directed by its clients.
“In preparation for HAFA, LAMCO has prepared its team of experts as well as its network of established vendors to further enhance the coordination among all parties involved in the short sale process,” said Brandon Hawkes, CEO of LAMCO.
HousingWire is joining forces with the Treasury for a Webinar on the HAFA program.
Write to Jon Prior.
As the mortgage origination industry continues to evolve its processes to become compliant with the changes to the Real Estate Settlement Procedures Act (RESPA), Minneapolis-based Wolters Kluwer Financial Services started a new service to help lenders ensure operations on in line with the new laws and avoid Department of Housing and Urban Development (HUD) sanctions.
The Wolters Kluwer RESPA Post-Implementation Audit Service helps lenders implement new policies and procedures to complement updates to software systems. Jason Marx, vice president and general manager of Wolters Kluwer Financial Services’ mortgage division told HousingWire that lenders facing many challenges in implementing the new RESPA rules, which include a new HUD-1 and good faith estimate (GFE) forms.
“The forms were brand new and they had new tolerances, new fee lines, new calculations and people that were preparing those things for years suddenly had to do it differently from Friday to Monday,” Marx said.
Wolters Kluwer lawyers, compliance analysts and regulatory consultants conduct a review of the company’s RESPA changes, including lending, compliance, vendor management, and staff training procedures, as well as loan file reviews of GFEs and HUD-1 and HUD-1A forms for accuracy and adherence to all RESPA requirements.
Since the new RESPA regulations took effect January 1, HUD has mandated compliance, but because the changes were so drastic, there has been some leniency. Implementing the policies has been difficult for lenders because prior to January 1, many of the standards were in flux, but that doesn’t excuse lenders from implementing the changes, Marx said.
“The regulators understood this was a large complex change and as long as lenders are showing good faith in going forward and making the changes necessary, that was where they were allowing the lenders some latitude in timing, but not necessarily in compliance,” Marx said.
“The expectation from the regulators is that there best be a good faith effort that you’re making to comply with the changes. Doing nothing is not acceptable,” he added.
Write to Austin Kilgore.
